MAZZONE v JAMES & ANOR [2010] NSWSC 437 | Case summary

280593/08 NICODEMO MAZZONE v TRYSTAN DAVID JAMES AND SHARRON JAMES JUDGMENT 1 HIS HONOUR: These proceedings relate to a joint venture or partnership under which the three parties purchased a house property in Cabbage Tree Lane Fairy Meadow for $310,000 in 2007. What was in contemplation was a business venture in which the property was to be renovated or improved and then resold for a contemplated profit. Some work was done on the property and it was occupied for many months by the second defendant, which cannot have been very convenient in view of the work which was proceeding. 2 There were disputes among the co-owners about the progress being made and the quality of the work done, the relationship broke down and entered a stalemate. The plaintiff commenced these proceedings on 12 September 2008 and claimed an order under the Conveyancing Act, Section 66G, appointing trustees for sale and dealing further with the sale as provided for by Part 3 Division 6 of the Conveyancing Act. 3 In claim 3 of the summons the plaintiff sought an order stating how the proceeds of the sale were to be distributed, in a common form, providing for payment of the mortgage, selling costs and commission and legal costs of sale. Then it was claimed that there should be this distribution: "(c) In payment to the Plaintiff of the sum representing his constitution to the costs of acquiring the land and renovation of the property plus interest; (d) The balance after deducting the amounts in 2(a), 2(b), 2(c) and 2(d) above to be divided between the plaintiff and each of the defendants equally." 4 The issue of the summons was soon followed by an order made by consent on 22 October 1998 appointing trustees for sale and making some directions for the later conduct of the proceedings. The matter did not progress as all parties then wished, and after conflict involving the trustees of sale so appointed, Gzell J made orders on 18 June 2009 under which the first trustees were removed and the Public Trustee was appointed as statutory trustee for sale in their place. The Public Trustee proceeded to sell the property and settled the sale on 11 January 2010. 5 Correspondence from the Public Trustee to the plaintiff's lawyers gave some information about the money held by the Public Trustee and enclosed a copy of a settlement statement dated 11 January 2010. From those documents it can be seen that the Public Trustee sold the property for $330,000 (which is $20,000 more than it was bought for), and on settlement the Public Trustee collected $14,224.37 after adjustments for council rates, discharge of mortgage fees and water rates and after paying out the mortgage which the parties obtained to support their loan from ANZ Banking Corporation and other charges or rates and water charges. 6 Soon afterwards it appears that the Public Trustee collected the balance of the deposit of $35,000 which had been paid. After agent's commission and advertising costs the amount collected was $26,868.00. So the Public Trustee realised $41,192.32 from the sale. I do not have the benefit of an up-to-date statement from the Public Trustee or evidence dealing with the matter but the parties informed the Court that on one side that the plaintiff had received information that the Public Trustee was holding $38,442 or, on the defendants' side, that the Public Trustee was recently holding $38,320.46 including some interest. I do not know the exact figure but it should be taken that the Public Trustee has charged commission and expenses and perhaps other charges against the moneys received from the sale. 7 The purchase by the parties of the property was financed first by payments made by the plaintiff who, from his own funds, paid the deposit of $31,000 to the sales agents Scholtens Property on 22 May 2007 and on 18 July 2007 paid $8,998.37 to Kells Lawyers who acted for the parties as purchasers of the property. The rest of the funds required to purchase the property were borrowed from the ANZ Bank on a mortgage for which all three were borrowers from the Bank. Some payments were made off the mortgage but from the way the proceedings were conducted before me it is accepted on all sides that the three parties bore those payments equally, so that no adjustment is required of the burden of the mortgage payments. 8 At various points in the affidavits filed there are references to contentions and claims that some expense fell unevenly on one party or another, or that one party ought to account for some loss or burden, but almost all of these have fallen away as the hearing has proceeded. 9 There was at one time a contention that the second defendant should pay an occupation fee for her occupation of the house for some months, but that contention has not been pressed before me. There was even a suggestion at some point that the plaintiff should pay some occupation fee but that too has not now been pressed. My understanding is that only an explicit arrangement for payment of an occupation fee would bring about an obligation by one co owner to pay such a fee to others. (See Forgeard v Shanahan (1994) 35 NSWLR 206.) There is no evidence of any such arrangement. 10 At one point it was contended that the venture, or perhaps the contention was that the plaintiff should reimburse the second defendant for a contribution to utility charges, meaning rates, water rates or some such charges incurred by the second defendant while she was in occupation. Although that was referred to in affidavits, I have not heard any contention to that effect today, and it would I think be altogether plain that if one co-owner was in occupation and paid charges relating to the period of occupation there would be no claim for adjustment against other co-owners. 11 There was also reference in the papers to claims by the plaintiff to be reimbursed for costs of building materials, and tipping fees which he claimed to have paid out, and for work which he had done on the property. On the other hand, there were contentions that the work which he had done had diminished the value of the property. None of these contentions has been pursued with any admissible evidence before me. 12 There is also reference in affidavits to a claim that the second defendant should be paid out of the venture $350 which she incurred for a building report in support of her contention that the plaintiff's work had caused loss. That is not, in my judgment, an ordinary expense of the venture to be brought into account in calculating profits and losses and I would not allow it. It is altogether clear that the first defendant paid sums totalling $870 for materials and work relating to plastering work, and he should be allowed this in any calculation of entitlements on completion of the venture. This ultimately was not disputed. 13 The big issue is what should be done about the sums totalling $38,988.37 which the plaintiff laid out at the beginning of the venture. It should be understood that I am not hearing a partnership suit or pursuing a settlement of accounts relating to the venture. What is under my consideration is the balance in the hands of the Public Trustee after the sale has been carried out; who is entitled to that money and what should the Public Trustee be told about disposing of it. 14 Completely rigorous logic would suggest when an order is made under Section 66G any balance of proceeds or sale should be distributed strictly in accordance with the interests in the land which existed at the time of the order and were converted into claims on the fund. However, as I observed in Arrow Custodians Pty Ltd v Pine Forests of Australia [2008] NSWSC 839 para 35: "It often happens that the Court decides on entitlements between co-owners in proceedings in which property has been or is to be sold under s 66G and the Court is in control of funds in which the co-owners have interests. Where there are two or three co-owners it is usual and appropriate for the Court to decide on any equitable or legal claims between them without paying close regard to whether the Court has gone past enforcement of the statutory trust for sale under ss 66F and 66G and is using its control over funds to enforce rights of other kinds; abridging processes of accounting and execution by directing how funds under its control are to be distributed. If there are enough funds it matters little whether in requiring discharge of a liability out of what would otherwise be distributable entitlement under s 66G the Court is giving effect to an interest in land, or to a personal claim; or to a constructive trust." 15 I made these observations after noting that the statutory trust which arises when an order is made under Section 66G does not give effect to claims other than ownership claims and I referred to Re Fettel (1952) 52 SR (NSW) 221 and other authority. 16 It seems possible that if all the accounts of the venture were taken to conclusion there might be some further claim by one party or another beyond the decision I am now making about the distribution of the funds held by the Public Trustee. However, I am acting within the limitation of the claim made in the summons which addresses only what is to be done with the proceeds of sale, and with the claim made by the plaintiff for his contribution to be paid out of the balance of the proceeds of sale. I say nothing to encourage the parties to take the controversy any further as only very small amounts could be involved. 17 I was told by the second defendant that the joint venture and the three parties have a joint bank account at the ANZ Bank which recently held $1,458.32. I am not called on by the claims in this summons to dispose of that and I can only express the hope that the parties have the good sense to divide it up equally without further expense. 18 In the plaintiff's principal affidavit of 8 September 2008 he gave an account in para 4 of the terms of the venture in which the property was to be purchased as an investment, the parties were to contribute equally towards the purchase, the house would be renovated or sold and the profit distributed equally. He said this about the initial contribution: "4.6 That in the event that any of us made initial contribution, he/she would be reimbursed for that contribution together with interest (at the rate equal to that charged by the mortgagee of the Property) on the sale of the Property and before any profit (if any) is distributed." 19 This evidence was challenged but he adhered to it. On the other hand, both defendants gave evidence to the effect that there was no such arrangement dealing with the initial contribution made by the plaintiff. There are some surrounding circumstances and probabilities which have a bearing on whether it should be found that the plaintiff is entitled to have his initial contribution paid out of the venture. If he had not produced the deposit and the payment to solicitors of the costs and charges presumably including stamp duty associated with the purchase, there would have been no venture. The evidence of the defendants confirms that it was a commercial venture with a view to profit. There is no basis for thinking of it in any way as a benefaction or good-hearted contribution by the plaintiff to the resources or welfare of anybody else. 20 Then, too, for all three parties the evidence about the terms of the venture speaks in terms of distribution of profits, and the first defendant went on to use expressions which showed contemplation that there could be losses. 21 The probabilities are markedly against a finding or conclusion that Mr Mazzone paid $31,000 deposit and paid the initial costs and fees to the solicitors just so that he could participate, without wanting his money back. 22 The affidavits of the second defendant of 22 January 2009 and 21 January 2009 also give accounts of the terms of the joint venture and do not contain any assertion that the plaintiff had made a gift or made any arrangement under which he was parting with his initial contribution forever. 23 Later, however, there was an unfortunate turn of events in the plaintiff's affidavit evidence. The affidavit of 5 March 2009 says in para 2, amongst other things, dealing with an early discussion: "I made it clear to them in the event we sell the Property at profit, I will be reimbursed for my initial contribution ($39,998.37). But if we sell the property at a loss, we will share the loss equally. We all agreed that any profit or loss will be shared equally amongst all of us." 24 He also asserted in para 3 that an earlier meeting in the present of the solicitor, Mr Bignall, the first defendant told him that the plaintiff would get "your money" which can only refer to the initial contribution before the distribution of any profit. Unfortunately, however, in the same affidavit at para 5 he said : "I did intend that my initial contribution be a gift." 25 In para 6 of an affidavit sworn today the plaintiff referred back to this statement and took up the statement in his earlier para 5 about a gift and said: "In this paragraph I inadvertently omitted the word 'not' which should have been written after the word 'did'. The correct para 5 of this affidavit should read 'I did not intend that my initial contribution be a gift'. " 26 He then refers to having his the solicitors point out this error in correspondence which, however, was only written a month or so before the hearing. 27 The plaintiff's oral evidence showed an unfortunate degree of engagement in conflict. He tended to talk a little wildly and go beyond the question, but he adhered to his position that he had not in any way agreed to a gift or agreed to make a gift. In my judgment the probabilities overwhelmingly support the plaintiff's position on this. It would be extraordinary if he had agreed to start the venture by paying almost $40,000 on some basis on which he was not to get it back. No evidence supports or makes probable his having made a gift of that kind. 28 The defendants' earlier affidavits did not suggest that the arrangement had been in those terms. In my finding the explanation which he has given to the effect that para 5 of his later affidavit was erroneous, a typographical error, is correct. In my finding there was no arrangement which defeated his entitlement and he is entitled to have his contribution brought into account in any calculation of profits or losses or other entitlements in the joint venture. 29 Overwhelming in the context is the discussions in terms of profits and losses, and it is hardly possible that those words were used in some sense which left out the initial deposit, stamp duty, solicitors' costs and so forth. In any event I find that that did not happen. 30 As far as concerns the money in the hands of the Public Trustee, it is plain then that there are no profits. Before there could be profits it would be necessary that the plaintiff should be paid back his $39,998.37 and that Mr Trystan James, the first defendant, be paid his $870; a total of $40,868.37 There is not enough money in the Public Trustee's hands to do this. The money which the Public Trustee holds will have to be paid out proportionately to meet these claims so far as it extends. 31 I have not upheld the claim which the plaintiff made for interest on his initial deposit. I am not satisfied as a matter of probability that there was an agreement that he would be paid interest; that would not altogether clearly accord with the nature of the venture, which was a venture for profits and a share of profits, not for interest. 32 The second defendant contended that I should make what she referred to as a fair distribution of the money available so that the plaintiff received 50% and each of the defendants received 25%. There is no basis in the evidence nor in the law for my departing from entitlements which arise under the terms of the joint venture as I have found that they were. 33 The plaintiff's payments constitute 97.87% of the total payments the first defendant's represent 2.13%. I propose to make an order under which the Public Trustee is to pay out 97.87% of the available funds to the plaintiff and 2.13% of the available funds to the first defendant. This is less than a full repayment, but that is the most that the funds available can do. 34 The Order is:

MAZZONE v JAMES & ANOR

At a glance

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Decision date

Before

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Judgment (11 paragraphs)

Parties

Cases Cited (3)